2022 (8) TMI 1385 - AT - Income Tax

Tribunal rules JDA capital gains non-taxable for 2010-11 assessment year, upholds 25% expense disallowance.

The Tribunal partly allowed the appeal, ruling that the capital gains from the Joint Development Agreement (JDA) dated 07.05.2009 were not taxable in the ... Capital gain - JDA - transfer of capital asset u/s 2(47) - HELD THAT:- Section 53A of the Transfer of Property Act, has no manner has application to impugned development agreement. Accordingly, section 2 (47)(v) of the IT Act is also not applicable as it has no effect of transfer nor enabling of any enjoyment by either of the parties on the date of execution of development agreement as the owner continue to own the land and the developer has no enjoyment whatsoever as it is only on the execution of a project in accordance with the terms of development agreement. As in the assessment under consideration, it cannot be said that there was a transfer in terms of section 2(47)(v) of the Act as nothing has been progressed with regard to the construction project from the end of the developer in this A.Y. Further, the possession in the present case is only permissive possession given by the assessee to the developer and not the possession in part performance of agreement of sale. There is no document by which the revenue can come to the conclusion that there was delivery of possession. The mere fact that development of the property cannot be done without possession cannot be the basis to come to the conclusion that possession was delivered in the part performance of the agreement for sale in the manner laid down in section 53A of the T.P. Act. Judgement relied by the Ld. D.R. in the case of T.K. Dayalu cited [2012 (6) TMI 405 - KARNATAKA HIGH COURT] cannot be applied to the facts of the present case as the constructive possession of property as per section 53A of the T.P. Act has not been given. Accordingly, we hold that there is no transfer in the assessment year under consideration in the A.Y. 2010-11. Capital gain arise out of this JDA dated 07.05.2009 to be taxed in the assessment year when the assessee actually got received his share of constructed area of flats from the developer, if it is not offered to him so far. This ground of assessee is partly allowed. Issues Involved:1. Legality and propriety of the reassessment order.2. Assumption of income and its basis.3. Consideration of statutory documents and litigation.4. Date of transfer and applicability of section 2(47)(v) of the Income Tax Act.5. Computation of capital gains and developmental expenses.6. Taxability of capital gains under the Joint Development Agreement (JDA).Issue-wise Detailed Analysis:1. Legality and Propriety of the Reassessment Order:The appellant contended that the reassessment order dated 16.11.2019 was illegal, improper, and unjust, violating the principles of natural justice. The Assistant Commissioner of Income Tax (ACIT) had reopened the assessment based on the JDA dated 07.05.2009, assuming income had escaped assessment. The Tribunal found that the reopening of the assessment was based on erroneous assumptions and lacked a legally sustainable basis, as the permissive possession given under the JDA did not constitute a transfer under section 2(47)(v) of the Income Tax Act.2. Assumption of Income and Its Basis:The appellant argued that the ACIT erred in assuming income during the impugned period, as no income had accrued due to inaction on the project. The ACIT had computed the income based on an imaginary selling price without any basis. The Tribunal observed that the transferee had neither performed nor was willing to perform its obligations under the JDA in the assessment year 2010-11, and no development activity had taken place. Therefore, the assumption of income was unjustified.3. Consideration of Statutory Documents and Litigation:The appellant claimed that the ACIT overlooked statutory documents like the granting of Khata, the original JDA, and ongoing litigation over the properties, which disabled the appellant and the transferee from carrying out any activity. The Tribunal noted that the Khata of the property was transferred to the appellant only on 28.05.2013, and various permissions for construction were obtained in subsequent years. The ongoing litigation and lack of necessary approvals hindered the project's progress, supporting the appellant's claim.4. Date of Transfer and Applicability of Section 2(47)(v) of the Income Tax Act:The ACIT treated the date of entering into the JDA (07.05.2009) as the date of transfer, applying section 2(47)(v) to compute capital gains. The Tribunal referred to the Bombay High Court's judgment in Chaturbhujdas Dwarkadas Kapadia vs. CIT, emphasizing that the conditions under section 53A of the Transfer of Property Act must be satisfied for section 2(47)(v) to apply. The Tribunal found that the transferee had not performed or shown willingness to perform its obligations under the JDA in the assessment year 2010-11, and thus, section 2(47)(v) was not applicable.5. Computation of Capital Gains and Developmental Expenses:The ACIT computed short-term capital gains and added 25% of the development expenses as additional income. The Tribunal directed the AO to compute the capital gains as long-term capital gains, granting the benefit of indexation of the cost of acquisition. The Tribunal also sustained the addition on account of disallowance of 25% of development expenses, as the appellant had not produced complete documentary proof for the development expenses incurred.6. Taxability of Capital Gains under the Joint Development Agreement (JDA):The Tribunal analyzed the JDA's terms and found that the permissive possession given to the developer did not constitute a transfer under section 2(47)(v). The Tribunal noted that the transferee had not performed its obligations, and no development activity had taken place in the assessment year 2010-11. The Tribunal concluded that the capital gains could not be taxed in the assessment year 2010-11 and should be taxed in the year when the appellant actually received its share of constructed flats from the developer.Conclusion:The Tribunal partly allowed the appeal, holding that the capital gains arising from the JDA dated 07.05.2009 could not be taxed in the assessment year 2010-11. The Tribunal directed the AO to compute the capital gains as long-term capital gains and sustained the addition on account of disallowance of 25% of development expenses. The Tribunal dismissed ground No. 12 as not pressed and did not adjudicate ground Nos. 2 and 13 as they were not argued before it.